RAMALLAH, West Bank, Sept 27 (Noah Browning and Jihan Abdalla/Reuters) - Palestinians who were galvanized a year ago by the launch of a campaign for statehood in the United Nations were left cold on Thursday by a watered-down bid from their leader President Mahmoud Abbas.

In a speech to the U.N. General Assembly, Abbas sought so-called "non-member state" status in the world body, a grade below the full recognition that eluded the Palestinians at the U.N. Security Council last year, due to insufficient backing.

Weather-beaten murals of Abbas raising the ill-fated application from the U.N.'s rostrum still dot the streets of Ramallah, the Palestinians' de facto capital in the Israeli-occupied West Bank.

Citizens seemed wary of investing hope in the new plan.

"To tell the truth, we see it as all talk, and we know it will have no concrete results," said Hussein Izzat, a construction contractor, lighting a cigarette as cars and pedestrians clogged squares which last year hosted euphoric rallies and a live broadcast of Abbas's address.

"The last time around, there was real attention to the speech. But in the time since we have gotten bored and depressed by the lack of action. I have no confidence in the president's words," he said.

The proposal, which Abbas has said will be submitted in consultation with the Arab League sometime before next September, has little chance of jump-starting the stalled Palestinian cause.

Abbas's government faces a deep financial crisis which has provoked street protests. Its rift with Hamas rivals in the Gaza Strip lingers, and Israel's occupation of the West Bank has entered its forty-fifth year with no end in sight.

Direct peace negotiations with Israel have been suspended for nearly two years over Abbas's refusal to carry on with talks while Israel builds more settlements on occupied land, and Israel's refusal to order a halt as a precondition for talks.

Taking the international diplomatic route to recognition of Palestinians statehood, failing a peace treaty that would secure the elusive "two-state solution" to the Middle East conflict, has been Abbas's Plan B for the past 18 months.

"We won't solve our conflict with unilateral declarations of statehood," Israeli Prime Minister Benjamin Netanyahu said in New York on Thursday. "We have to sit together, negotiate together and reach a mutual compromise in which a demilitarized Palestinian state recognizes the one and only Jewish state."

INTERNAL DISSENT

The political adviser to Ismail Haniyeh, Abbas's main Palestinian rival and prime minister of the Hamas government in Gaza, said the latest initiative by the president -- which would obtain an easy majority in the General Assembly -- would not improve the lives of Palestinians.

"I hardly can see a difference between an Authority under occupation and a state under occupation, because the core problem from which we all suffer is the occupation and not the terminologies," Yousef Rizqa wrote in an editorial.

Waiting for a fare beside his taxi, with the presidential speech at top volume on the radio, Mohammad Hammad questioned whether the president's rhetoric matched his people's reality.

"He sounds eloquent and knowledgeable of all the facts, but it seems to me that he has lost touch with what truly matters to the Palestinians," he said.

"He has no idea what it's like to live day by day, under an occupation and choking economic conditions. All this has nothing to do with podiums and political slogans," he added.

The permanence of the occupation and the perceived ineptitude of their leaders have turned many Palestinians off from politics. Today it is rising prices and stagnant growth that could stoke enough discontent, say analysts, to destabilize the Palestinian Authority.

Overlooked by a world more engrossed by financial recovery and the continuing Arab uprisings, Palestinian officials were quick to attribute local disinterest to global events.

"Palestinian people feel that every attempt in the past was crushed by Israel and an international community that fails to support them," Hanan Ashrawi, a senior official in the Palestine Liberation Organization, told Reuters.

"People's feelings are understandable. This is not a dramatic or a showy move - it is a political move par excellence," she said. (Additional reporting by Nidal al-Mughrabi in Gaza and Ali Sawafta in Ramallah.; Editing by Douglas Hamilton and Myra MacDonald)